You are considering purchasing a new home.You will need to borrow $250,000 to purchase the home.A mortgage company offers you a 15-year fixed rate mortgage (180 months)at 9% APR (0.75% month).If you borrow the money from this mortgage company,your monthly mortgage payment will be closest to:
A)$2585
B)$660
C)$2535
D)$1390
E)$1868

Question

Quizplus · Accepted Answer

We can use the formula for calculating monthly mortgage payments:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

where
M = monthly mortgage payment
P = the amount borrowed (principal)
i = monthly interest rate, expressed as a decimal
n = number of monthly payments (in this case, 180)

Plugging in the numbers, we get:

M = 250000 [ 0.0075(1 + 0.0075)^180 ] / [ (1 + 0.0075)^180 – 1]

M ≈ $2535

So the closest answer choice is C: $2535.

You Are Considering Purchasing a New Home